Finance for Sport and Leisure Managers

An Introduction

Robert Wilson, John Joyce

• Publisher: Routledge
• Year: 2007
• ISBN:
  9781134137862
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Sport and leisure managers need to understand the financial side of their industry to offer the most cost-effective facilities and to make sound business decisions. However, to the non-expert the language and practice of finance is often bewildering and perceived as complicated, difficult and impenetrable. This textbook guides the reader throu

PART 1
THE BASICS

CHAPTER ONE

FINANCIAL ACCOUNTING IN CONTEXT

On completion of this chapter you will be able to:

• Communicate the purpose of accounting in a sport and leisure context.
• Identify and describe the users of accounting information.
• Distinguish between financial and management accounts.
• Understand the information needs of user groups.
• Understand the statutory requirements of sport and leisure organisations.

INTRODUCTION

Let’s get this straight. Accounting is not just about numbers. You do not have to be a skilled mathematician to understand a set of accounts and you do not have to spend hours of time learning various theories. Instead you can appreciate the need for accounts and how to work with accounts (and accountants!) by understanding the ‘rules’ and procedures that accountants follow. Put simply, accounting is a way of showing to external stakeholders and internal management how well a business has performed over a period of time and its prospects for continuing to operate.

The aim of this book is to focus on how to use accounts, not produce them. As future managers you need to be able to interpret and then communicate the meaning of accounts to a variety of people for a variety of reasons. The identification of the users of the accounts and their needs provides the reasons for the accounts. Without an understanding of why the accounts are being prepared, the numbers and the situation they portray will be meaningless. This chapter aims to identify the user groups and their needs and illustrate why financial accounting is integral to the sport and leisure industry.

You may have heard the terms ‘accounting statements’ or ‘set of accounts’ but do you understand what they actually mean? You may also have wondered who uses accounting information and what the purpose of accounting actually is. We will therefore start with a quick overview to help you understand what accounting is all about.

KEY TERMS

ACCOUNTING

This is about identifying, collecting, measuring, recording, summarising and communicating financial information.

ACCOUNT

A record that is kept as part of an accounting system. It will be a record of the transactions and will be recorded in monetary values.

FINANCIAL STATEMENTS

The complete set of accounts. This will include the balance sheet (this shows the organisation’s assets and liabilities), income statement (the profit and loss account) and the cash flow statement. Also included will be notes on the accounting policies used and significant activities.

ACCOUNTING IN SPORT AND LEISURE

Organisations, ranging from huge multi-million pound operations, such as Manchester United Football Club, to small voluntary sports clubs and teams, such as a local swimming club, will produce financial statements at least once a year. The objective of the final accounts is to provide information to a range of users (not just the owner or shareholders). The information provided in the accounts is concerned with the resources held by the business and how they are used. The accounts therefore show the organisation’s position at the end of a financial period, an analysis of changes during the period, and point to the future prospects of the business. This information will be of great importance to anyone who has an interest in the business because it shows whether or not the organisation is achieving its goals.

At this point it is probably worth you having a look at a set of financial statements. If nothing else this will show you the financial results of an organisation and how the accountant presents them. In Figures 1.1, 1.2 and 1.3 you will find a paragraph or two about the organisation’s goals, the profit and loss account and balance sheet for Southampton Leisure Holdings, that is the group that owns and operates Southampton Football Club, for the period ending 30 June 2006. These are actual excerpts from the company’s annual report and something that we may ask you to think about later. It is important that you don’t worry about what everything means here but it is useful if you can see what the two statements are basically illustrating while referring to the corporate statement.

CORPORATE STATEMENT

TO STRIVE IN PARTNERSHIP WITH THE CLUB’S SUPPORTERS, SHAREHOLDERS, POTENTIAL NEW INVESTORS, SPONSORS, EMPLOYEES AND OTHER STAKEHOLDERS, INCLUDING THE LOCAL COMMUNITY, TO RE-ESTABLISH AND MAINTAIN SOUTHAMPTON FOOTBALL CLUB AS A FINANCIALLY ROBUST BUSINESS. A BUSINESS WHOSE PRINCIPAL ASSET IS A STYLISH AND ENTERTAINING FOOTBALL TEAM THAT EVOKES LOYALTY, PRIDE AND PASSION ON THE PART OF ITS FOLLOWERS. A TEAM THAT IS GENUINELY CAPABLE OF FINISHING AMONGST THE TOP TEN CLUBS WITHIN THE FA PREMIER LEAGUE AND REACHING THE LATTER STAGES OF THE FA AND LEAGUE CUP COMPETITIONS EVERY SEASON.

Figure 1.1 Southampton Football Club Corporate Statement

Source: From Southampton Leisure Holdings Plc Annual Report and Accounts 2006.

ACTIVITY

For the information that you have on Southampton Football Club (see this and following pages) can you answer the following questions?

• Is the organisation meeting its corporate statement?
• How has the business performed over the past year?
• What are its future prospects?

CONSOLIDATED PROFIT AND LOSS ACCOUNT
PERIOD ENDED 30 JUNE 2006

	Note	Operations excluding player trading 2006 £’000	Player trading* 2006 £’000	13 months ended 30 June 2006 £’000	12 months ended 31 May 2005 £’000
TURNOVER	1	25,696	–	25,696	44,828)
Cost of sales	2	(26,055)	(5,308)	(31,363)	(44,990)
Gross loss	2	(359)	(5,308)	(5,667)	(162)
Administrative expenses		(6,861)	–	(6,861)	(6,324)
OPERATING LOSS	3	(7,220)	(5,308)	(12,528)	(6,486)
Profit on disposal of players		–	11,241	11,241	5,602
Profit on sale of tangible fixed assets	4	–	–	–	3,094)
(Loss)/profit before interest and taxation		(7,220)	5,933	(1,287)	2,210
Net interest payable	5			(2,008)	(1,978)
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION				(3,295)	232
Tax on (loss)/profit on ordinary activities	8			953	(159)
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION				(2,342)	73
BASIC (LOSS)/EARNINGS PER SHARE	10			(8.34)p	0.26p
DILUTED (LOSS)/EARNINGS PER SHARE	10			(8.34)p	0.26p

*player trading represents the amortisation of registrations and the profit or loss on disposal of registrations.

All amounts derive from continuing activities.

There are no recognised gains or losses for the current financial period and preceding financial year other than as stated in the profit and loss account. Accordingly, a statement of total recognised gains and losses has not been presented.

There is no material difference between the results reported above and the results on an unmodified historical cost bais. Accordingly, a note of hist...